Esha Chhabra: Banking the 'unbanked' consumer via cellphone

So many people in the world don’t have bank accounts. And many of them don’t want to have one. They find it to be a hassle. Just imagine all the fun that they’re missing out on. No deposit slips, no lengthy customer service calls, no lines at the local branch, no waiting at the ATM for $20 bills.

But what’s striking is that nearly half of the world is “unbanked.” Something that you and I think of as a requirement, a necessity, is not an aspect of many people’s daily lives. GSMA, an organization that represents the global mobile and telecom industry, put out some fascinating numbers on the unbanked populations of the world:

n Nearly 10 million households (about one in 12 homes) in the U.S. are unbanked. A larger sum, approximately 30 million are “underbanked” in the U.S.

n On a global stage, 2.5 billion adults (2.2 billion in Africa, Asia, Latin America and the Middle East) do not use formal financial services to save or borrow.

Hence, these folks have become the focus of a new buzzword — “financial inclusion.” What’s the solution? Build more banks and employ more tellers? Not quite.

While many of the financial companies and banks are now deploying global programs — through corporate social responsibility or foundation programs — to help those outside the financial world, many of these individuals are not interested in participating.

Why, I recently asked the head of a mobile transactions company in India? “They don’t trust the banks,” he said.

The solution to not having banks? Cashless transactions. For instance, GSMA reports that only 10 percent of Kenyans use financial services and have formal bank accounts. However, Kenya has been the birthplace of the most talked-about experiment in financial services — M-Pesa.

Introduced by Safaricom, the leading telecom provider in the country, it enabled citizens to transfer money from one person to another without having a bank account.

Similar to a prepaid card, the prepaid feature on the cellphone would enable individuals to store cash on their mobile devices. When they needed to pay a merchant, pay their utilities, etc., they would use a simple text-messaging code and the funds would be transferred — cashless and no banks involved. There’s 15 million users of M-Pesa.

Now, companies such as Vodafone have been trying to replicate this model in other countries. I recently met up with an entrepreneur in Delhi, India, who started a cashless transaction company. He went back and forth with regulators for five years, who kept asking, “Why don’t you turn this into a bank?”

He was adamant that he didn’t want to be a bank. He just wanted to provide financial services to the 600,000 villages in his country that don’t have banks or ATMs.

I asked: Why not become a bank? In reply, he quoted Gandhi: “I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man, and ask ourselves, if what we contemplate is going to be of any use to him. Will it restore him to a control over his own life and destiny and bring a smile to his face? Will it lead to Swaraj (self-government)? Then you will see your doubts and self melt away.”

That’s certainly unusual inspiration for a mobile money company. But he wanted to stay away from becoming a financial institution; he simply wanted to connect the dots and serve the unbanked of his country. He’s done it well; he has about 14 million customers.

Furthermore, the company uses a network of women throughout the country who serve as facilitators, providing mobile services at the local level. Women who would otherwise be unemployed are finding a supplementary income in selling mobile services.

I found it fascinating to see how an alternate system is emerging around the world.

While we may feel the solution is to simply place a bank in each of these underbanked communities, be it in the U.S. or in the developing world, these enterprises think otherwise.

That’s innovation — it’s not merely a new gadget, but using the gadgets that exist to reinvent the system.